The energy markets are starting to recover from their multi-year swoon, but there may be a bigger change ahead.
It’s starting to look like the rise of self-driving vehicles is not only inevitable, but that it will be here sooner than many would have thought possible. That will likely upend the oil markets in ways many have never considered.
For evidence of the rise of self-driving vehicles, one needs to look no further than the two recent announcements showing how fast technology and regulations are evolving.
First, Michigan, the traditional home of automobile production, just became the first state to put in place comprehensive rules allowing self-driving vehicles to operate without a driver.
While different states are proceeding at different paces, it is clear that the regulations are changing fast. States adapting their rules represent more than 25 percent of the overall U.S. population – in other words, for more than a quarter of the United States, self-driving car testing and more is now legal.
That’s a huge shift from a couple of years ago, when all of this would have been regarded as a fantasy.
To be clear, Michigan is enacting these laws in order to protect its own interests; only motor vehicle manufacturers are allowed to operate an on-demand network of self-driving cars. Thus Google, Apple, and anyone else who is not a manufacturer, but wants to play in this space in Michigan, will have to work with a traditional automaker.
The changes in technology in the space are even more significant than the change in regulation though.
Anheuser-Busch recently used a self-driving truck for the world’s first autonomous cargo shipment, hauling beer 120 miles across Colorado. The truck technology was built by an organization called Otto.
Otto was founded by former members of Google’s self-driving vehicle team, and the new firm was quickly snapped up in an acquisition by Uber.
AB’s self-driving truck delivery is a big deal. There are 3.6 million class 8 trucks in the U.S. that drive more than 280 billion miles each year, using roughly 43 billion gallons of fuel.
These semi-trucks are extremely expensive pieces of capital equipment which means that outfitting them with self-driving tech to make them more economically efficient and potentially more fuel efficient is sensible.
With AB already pushing the envelope and having a self-driving truck running cargo 120 miles across a major state, it is very likely that we’ll see more and more of this type of innovation in the next 12 months.
Two years ago, almost no one outside the industry was talking about self-driving vehicles. Today, the technology is advancing so fast that every week seemingly brings a new milestone.
In two more years, many new commercial cars and trucks may be equipped with the tech. Within five or ten years, the idea of a professional driver may be obsolete. When this happens, it could lead to more travel and transportation (because the cost of those activities falls), but it could also lead to greater fuel efficiency thanks to less stop-and-go driving. It’s an open question which effect will dominate.
All of this is significant for oil investors – cars and trucks are the dominant users of oil. Even forgetting about electric vehicles altogether, self-driving gas and diesel powered vehicles will change the dynamics of the market. Will we use more or less oil? A valid hypothesis can be made either way. For now, investors need to study this emerging trend carefully and try and discern its effects on demand.